As Gordon Brown's war cabinet struggles to keep the economy afloat, ministers will be relieved to see that food price inflation appears to be on its way down.

On commodity markets, the price of wheat is barely half what it was a year ago. And as it falls, more food prices look set to tumble. But before cracking open the Bollinger, the Brown cabinet would do well to ponder the implications of having food prices so closely bound up with commodity movements.

Our food supply is now more dependent on globally traded grains than at any time in our history. This makes it inherently unstable and vulnerable to the kind of catastrophic meltdown that threatened the banking industry. First, there's the danger of extreme weather events, worsening as a result of climate change. Grains are at risk both from heavy rainfall and from drought, and this year's rain-drenched harvest was saved only by a fine spell in September.

Then there's the reliance of wheat farmers on oil. To grow the crop, they need diesel to power their giant machines, whose very manufacture requires barrels of the stuff. Then there's the oil contained in the chemical fertilisers and pesticides, without which their over-worked soils would scarcely grow a thing. Little wonder, then, that wheat price movements reflect almost exactly the rollercoaster fluctuations of the oil market. Finally, our grain-based food supply is largely controlled by commodity traders and brokers - speculators now dictate the price and availability of many foods on our supermarket shelves.

In the early days of the second world war, prime minister Winston Churchill called on Britain's farmers to boost our supply of homegrown food. Today, they would be unable to respond even if they wanted to. First they would have to negotiate prices for fertilisers and pesticides, then await shipments of oil.

Wartime farming was powered not by fossil fuels but by the sun, and at the heart of Britain's food production was grassland. Most of Britain's food animals were raised on it - cattle, sheep, poultry and pigs in a genuinely sustainable production model. Grasslands do not need chemical fertilisers or pesticides, particularly when they contain nitrogen-fixing clovers and deep-rooting herbs to tap soil mineral reserves. Supplemented by cereals and root crops, pastures produced most of our beef, lamb, pork, dairy, eggs and poultry for little more than the cost of the farmer's labour.

Grasslands produced most of our grain crops, too. Cereals such as wheat and barley were grown in rotations which included two or three years of grass. Undergrazed pasture soil rapidly builds fertility as plants and soil fauna decay. When the grass is ploughed and sown with a cereal crop, the plants make use of the recycled nutrients.

This kind of sustainable mixed farming was still common in the 1960s. Yields of individual crops were generally lower than today, but since farmers bought few inputs, they made more money out of what they grew. And taking the farm as a whole, the food output per acre from a well-run mixed farm was often higher than today's intensive chemical operation.

Powering the whole system was grass. The pasture field acts as a vast solar panel, capturing solar energy in the chloroplasts of leaves and using it to build sugars from atmospheric carbon dioxide. Not only did grassland produce copious amounts of food, it removed carbon from the air into the soil and slowed climate change.

Agribusiness interests - generously supported by western governments - all but destroyed this system. In place of pastures they have substituted internationally traded grains. For Britain, wheat has been the means of globalising production and taking away our food security.

For more than three decades, governments - particularly those of the US and the EU - have used the subsidy system to maintain a near-permanent surplus of wheat on world markets, sweeping away pasture systems and making it more profitable for farmers to confine their animals to sheds and feedlots.

The grain-based system wouldn't survive without public subsidies. Spending under the common agricultural policy still amounts to £40bn across EU member states. British farmers receive £2.7bn. The main beneficiaries are large-scale arable growers and commodity companies.

Where I live in west Somerset, many country lanes run red during the deluges we experience ever more frequently. This is silt running from fields whose fertility and organic matter have been depleted by too many grain crops. Higher levels of organic matter would end the erosion and protect our towns against flash floods.

What's more, efficient use of grasslands would go a long way to meeting the challenge of climate change. The Royal Society has estimated that better management of the world's farmlands could capture as much carbon as is accumulated in the atmosphere each year. A US group, Carbon Farmers of America estimates that returning the US prairies to the soil organic matter levels of the original prairie grassland would return global carbon dioxide counts to pre-industrial levels.

As in wartime, the countryside could once again be at the heart of a national revival. It's time to bring our food supply back home.

• Graham Harvey is author of The Carbon Fields, published last week by Grassroots, price £6.99. grassrootsfood.co.uk